Transcript

00:12:04 TONYA: So we kind of touch on risk in that last section, but let's really get into risk versus reward because that's what makes it all possible, right? You're taking a risk, you earn a reward. So let me hear your opinions on helping customers analyze the risk versus the reward when it comes to their investment strategy.

00:12:24 EARL: There’s a lotta tools that will help people learn how to take the risk or be more comfortable with taking a risk, but most customers, they just focus on the risk part. They can only see themselves losing. And you may have experienced that, too.

00:12:42 TONYA: Yeah, it’s because I think we hear it a lot in the news. There’s always, “The DOW did this.” We're always talking about what happened, what people lost instead of the rewards. We don’t really talk about the success stories of people who were invested in the market.

00:12:54 EARL: Yeah.

00:12:55 DAN: Well, I also wanna step back and make sure people understand because I don’t know that everybody knows this, that risk and reward also move together, right? You can take a lot of risk, and with that comes more rewards. If you’re not comfortable with that, you can take less risk, but with it will come a little bit less reward. They’re just gonna move together, right? If there was something very high-return that was very low-risk, we wouldn’t be here. We’d be on our island paradise somewhere, right?

00:13:21 EARL: Right. Right.

00:13:22 DAN: But I think the risk is highly publicized, but people don’t really think about it over the long term.

00:13:29 TONYA: And I think that’s what scares people. When we think about fear, when it comes to investing, it’s the risk. Because people aren’t afraid of making more money. They’re afraid of losing money and making the wrong decisions.

00:13:38 EARL: Yeah. And I think people have to be careful in terms of understanding that yeah you got risk versus reward, but you also got risk tolerance. Now risk tolerance is a situation where you could — you know, the market — you know, what risk are you willing to take here? Because the market can go up. The market can go down. Your investments can go up. Your investments can go down. We don’t know. We don’t know what’s gonna happen, but now a person will say, “Okay, I don’t know that I really wanna take this type of risk. What are my risk tolerance?” Well, everybody’s is different, and so you may wanna start with just looking at a simple thing like balancing your risk again a reward. Don’t be too far out here. Just like Dan said, if you wanna be out here and get this great reward, then you got to take more risk. Well, you may not be comfortable with that. Your risk tolerance may not allow you to reach out that far.

00:14:36 TONYA: Absolutely.

00:14:37 EARL: But just balance it until you feel more comfortable in terms of what you can do.

00:14:41 TONYA: Absolutely. And, Dan, I think, you know, you probably work with people in helping them identify their different risk profiles, right, when you’re working with clients?

00:14:47 DAN: Yeah. Absolutely. Everybody’s gonna have a little bit of a different feeling about risk. So we kind of break it into three. There’s conservative, which is, “Hey, I’m really — I don’t like to see the ups and downs. I’m okay”, kind of that slow and steady, “I don’t wanna take a lot of risk, but that’s okay if I don’t get quite as much return”. And then on the other side there’s the aggressive, right? “I am okay with big up and down as long as I kinda go in as fast as I can where I wanna go.”

00:15:14 TONYA: Yeah.

00:15:14 DAN: And then obviously there’s kind of a moderate, which a little blend of those two. “I wanna see some return. I wanna see some growth, but I know it is gonna come with some ups and downs as we go.” And obviously those are three, but it’s a spectrum, right? Some people are gonna fall somewhere between the first two, the second two, it’s gonna be where do you fit in kinda those three in general.

00:15:36 TONYA: And we’re gonna dig into portfolio, but you can adjust that over time.

00:15:38 EARL: Yes.

00:15:39 DAN: 100%.

00:15:40 TONYA: Just because you’re aggressive right now doesn’t mean you have to remain aggressive the duration of your investment history.

00:15:44 DAN: 100%.

00:15:45 EARL: Right, and the time horizon is the time you have to invest is going to dictate a lot of that, but what you don’t want to find yourself doing is having to be aggressive because now you waited, you waited, you waited, and you haven’t done what you needed to do, and you’re trying to get it all at one time. That’s a very bad situation to be in. So you wanna be really careful with how you’re choosing that. You can lean a little bit towards the middle, or lean a little bit towards the aggressive, but just wanna be really careful that you’re not too far out there.

00:16:20 TONYA: We all have different personalities. We all have different risk tolerances, and it’s important to identify which one works out best for you in your situation. Let’s have a look at what we’ve learned.

00:16:29 (Music / Chapter 3 Ends with Key Takeaways slide)

Weighing the risks.

Higher-risk investments offer the possibility of larger rewards. Less risky investments are more stable and less likely to bring a larger reward.

A great way to gauge how you should invest is to figure out your risk tolerance. Everyone's risk tolerance is different - we suggest doing some online research to help figure out where you land.

Check out the video for more details on risk tolerance as well as the risks and rewards of investing.